Speculation arises that spending cuts may be reducing supplies

Norway's Statoil, which has extensive U.S. operations including this drilling site in North Dakota's Bakken Shale, said it will cut U.S. onshore capital spending by 25 percent. ( Jay Pickthorn/AP/Statoil).

Norway's Statoil, which has extensive U.S. operations including this drilling site in North Dakota's Bakken Shale, said it will cut U.S. onshore capital spending by 25 percent. ( Jay Pickthorn/AP/Statoil).

A rig hand works on equipment at a Knox Energy drilling site in Ohio. Analysts say a turnaround depends on a supply reduction.

A rig hand works on equipment at a Knox Energy drilling site in Ohio. Analysts say a turnaround depends on a supply reduction.

Photo: Ty Wright

Industry's still not bubbling about oil's bounce

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Job losses and further cutbacks in drilling cast more shadows on the oil industry Friday, though a continuing rally in crude prices led to some speculation that the market is starting to believe the spending cuts may soon reduce supplies.

U.S. benchmark West Texas Intermediate crude ended New York trading at $51.69 a barrel, up $1.21 for the day and 17 percent since reaching a six-year low of $44.45 on Jan. 28.

But a year ago Friday, the price was $97.84, and it climbed above $100 before beginning a six-month slide that has quieted several years of giddiness about rising U.S. oil production.

The rallies may be a sign that the market believes spending cuts - announced by virtually every significant oil producer in recent months - will be enough to correct the imbalance between oil supply and demand that has prompted the price slide.

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"You're seeing this turnaround, and hopefully, $45 oil is gone," said Carl Larry, an analyst at the consulting firm Frost & Sullivan.

Oil field services company Baker Hughes reported Friday that its weekly tally of U.S. drilling rigs showed a decline of 87 to 1,456. It marked the ninth consecutive week the number of rigs searching for fossil fuels in the U.S. has dropped, as a growing number of producers are working to conserve cash and save production for a time when they'll earn a larger return on their investment. The number of rigs operating in the U.S. is now at its lowest level since early 2010.

"We're finding that balance," Larry said. "They're laying down rigs that are not profitable. More importantly, we're not seeing anybody add rigs."

Others are skeptical that oil prices have bottomed out, the recent rally notwithstanding.

"There's definitely a rush to judgment," Timothy Evans, energy futures specialist at Citi, said in an email.

Evans said the perception that prices may have reached a floor stems primarily from falling rig counts. But U.S. crude inventories, which continue to build, point to oversupply.

"The growing inventories represent an ongoing confirmation that the market remains oversupplied, with risk that they tip prices back down to retest the lows, or even break to new lower levels," Evans said.

The slowdown in drilling activity has resulted in job cuts in an industry that has enjoyed a hiring bonanza in recent years.

A Labor Department report published Friday indicates the U.S. lost 1,900 oil and gas extraction jobs from December to January.

The oil sector's grim employment news clashed with the overall job picture in January. The economy added 257,000 non-farm jobs during that period, the government reported.

In recent years the oil and gas sector has been an engine driving the U.S. economic recovery, directly adding 59,600 jobs from January 2010 to December 2014 according to Bureau of Labor Statistics payrolls data.

But January's energy job decline could be just the beginning, as more companies slash budgets and shrink services contracts.

Advertisements for a broad range of engineering jobs were up 9.4 percent overall in the fourth quarter of 2014, compared with a year earlier, according to data from EngineerJobs.com, the largest engineering jobs board in the United States and Canada.

But listings that advertised openings specifically for petroleum engineers plummeted 14.4 percent during that same time frame.

Thousands of layoffs

On Thursday, Weatherford International announced 8,000 oil job cuts, bringing the tally of layoffs by the world's four biggest oil field services companies to 25,000.

German industrial conglomerate Siemens said Friday it will scrap 7,800 jobs over the next two years to cut costs, as it faces lower energy equipment profits and a battered European economy. About 3,300 of those employees are based in Germany.

The company will "be facing the operational impact on its sales from lower oil and gas capital spending following the sharp decline in oil prices" and "the impact of the very sharp contraction in Russia," Nicholas Heymann, an analyst at William Blair in New York, wrote in a note to clients.

Outlook for Statoil

Employees of Norwegian oil giant Statoil, which has offices in Houston and significant U.S. operations, also could face cuts soon.

During a presentation to analysts Friday, company leaders said Statoil will cut its capital budget to $18 billion this year from $20 billion, and many of those cuts will be focused onshore in the U.S. Statoil is active in the Marcellus Shale in the Northeast, Eagle Ford in South Texas and Bakken in North Dakota.

"That has to do with the fundamental view that we are in a downturn, and it might be more profitable to produce these barrels at a later point in time with a higher oil price," Statoil CEO Eldar Sætre said in a Friday news conference.

The company said it will cut its U.S. onshore capital budget by 25 percent, but Sætre didn't put that number in dollar terms, nor did a U.S. Statoil spokesman.

Executives also hinted at the possibility of further layoffs at the company as they address the "underlying efficiency" of operations in the U.S. and elsewhere.

Statoil's global head count is about 8 percent less than it was a year ago, Sætre said, but more cuts could be coming.

"I don't have a crystal ball better than any of you," Sætre told journalists. "All I see is a lot of uncertainty ahead of us, meaning also, volatility."

Dlouhy reported from Washington. Robert Grattan and Collin Eaton contributed from Houston.